Watch list: Baidu about to provide my entry point

I’ve been tracking Baidu Inc. ($BIDU), the Google of China, for a couple months now. I wanted to record my thoughts and analysis.

BIDU is a fantastic opportunity to leverage the Chinese consumer and their rising middle class, while controlling for the negative byproducts of their macroeconomic growing pains (shift away from fixed investment/exports toward consumption).

My short term technical analysis of BIDU butts-heads with a lot of traders out there, like Options Addict over at iBankCoin, who’s immediately bullish on the name, pairing short term long calls with a long position on the underlying stock.

As you can glean from the notes above, BIDU’s primary pattern is a weekly long term bull flag that’s already started rallying after April’s lows. In the shorter term, BIDU has formed a 30-minute Head & Shoulders top with a $134 neckline and 3x bear divergence. Neckline support held the right shoulder’s first attempt to pass southward, now a 1x bull reversal would materialize if BIDU trades up next week, saving the stock from a correction.

That H&S peaked at the $143 rim of a daily long term Cup & Handle. Thus, the charts weave a narrative that suggests BIDU will break down below it H&S neckline to form the handle of its maturing C&H. There’s weak 1st support at $125, but I’ll start buying at $120 all the way down to $113. These entry points are 38.2% and 50% Fibonacci retracement levels, which straddle the gap up from 2q earnings.

The weekly fractal is overbought too, supporting this notion of a short term pullback. Of course, the overarching constructions are bullish, with that aforementioned weekly long term bull flag and bullish monthly indicators:

BIDU daily/weekly/monthly

If BIDU plays out as envisioned, I’ll enter the position. If not, I won’t have an edge, and I’ll have to reassess.

We’ve been sitting on a General Electric ($GE) position that’s done nothing but pay dividends since April. I plan on selling GE to free up cash, which I’ll likely allocate into BIDU. We might do some other sell/buy/add shuffling, but I’m waiting for entry points on the Europe ETF ($FEZ), Brazil ETF ($EWZ), Standard Motor Products ($SMP), and WestJet Airlines ($WJA.TO). Similarly, I’m also waiting to add to the Japan ETF ($DXJ).